First, you have to understand the different types of real estate investment loan options out there. Each option will have its own benefits, and its own set of disadvantages. Which one is best for you will depend on your individual circumstances and what you’re planning on investing in. Let’s take a look at each of these options below:
Many people’s first instinct for a real estate loan is to head to their bank and see what kind of rate they can get. While bank loans can occasionally
be a good way to go, they also tend to have strict terms. Bank loans typically require you to use your assets as collateral, meaning they can go after more than just your property if you default. That being said, sometimes bank loans have favorable loan structures or pricing, so it can be a good option depending on what you’re able to get.
FHA loans are government insured and are definitely a popular option for many real estate investment loans. Typically, FHA loans have long, favorable term-lengths, low interest rates, and high levels of leverage. Also, if you default the only recourse is the property itself, not additional assets.
Of course, FHA loans aren’t perfect. They can take a long time to approve, making it hard to be swift and jump on new investment opportunities. They can also have complicated requirements. An easy remedy to this is to work with a lender who knows how to navigate these loans. This makes the process go much faster.
You could always consider a personal loan for real estate investment, especially if you have great credit. Personal loans are unsecured, so they can’t go after your assets, and they can have flexible and favorable conditions. Of course, if your credit is less than great, you could end up with high-interest rates and high penalties.
Fannie Mae and Freddie Mac loans are a popular option for multifamily financing. They often have high leverage levels and low interest rates. They also offer a wide variety of loan terms that can work for various different investing scenarios. These loans are definitely worth considering, but keep in mind that they don’t offer loans directly to borrowers. In order to obtain an agency loan, you’ll need to work with a lender who operates as a middle-man between you and the agency.
Bridge loans aren’t meant to finance your entire investment, but they’re useful when you’re waiting for long-term financing to be improved. These are often combined with FHA or agency loans to act as a bridge between acquiring your property and waiting for your more permanent loan to come through. Of course, this means they have short terms and high interest rates, but the amount you take out will obviously be much smaller.
VA loans are definitely worth looking into if you’ve served in the military. These have some of the most favorable loan terms out there. With a VA loan, you can invest in properties without a down payment and fund 100% of your property. Also, there’s no minimum credit score requirement and no need for private mortgage insurance. Those are just a few of the primary benefits of VA loans.